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A Comparison between Formal and Informal Mutual‐credit Arrangements
Author(s) -
Reito Francesco,
Spagano Salvatore
Publication year - 2014
Publication title -
the developing economies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.305
H-Index - 30
eISSN - 1746-1049
pISSN - 0012-1533
DOI - 10.1111/deve.12043
Subject(s) - collateral , mutual aid , association (psychology) , business , economics , finance , market economy , psychology , psychotherapist
We analyze under what conditions a group of potential entrepreneurs prefer to form a Rotating Savings and Credit Association ( ROSCA ), or a mutual‐guarantee association, which we interpret in a rotating scheme and call Rotating Savings and Collateral Association ( ROSCoA ). We argue that: (1) ROSCA s ( ROSCoA s) are likely to be more developed in countries with high (low) bank concentration; (2) the individual flow of savings required to participate in a ROSCoA is generally lower than that needed in a ROSCA ; (3) under the assumption that members share their project income at the end of each period, ROSCA s and ROsCoA s are sustainable even without the use of sanctioning mechanisms.